Making Cents: Update your estate plan

Monday

Apr 26, 2010 at 12:01 AMApr 26, 2010 at 7:14 AM

Under the current federal estate tax laws, there is no federal death tax. Of course, no one believes that this situation will remain the same for long, but where it goes is still up for debate. The cold hard facts are that federal laws will be different on Jan. 1, 2011, or sooner, and many states are likely to have changes, too.

John P. Napolitano

Under the current federal estate tax laws, there is no federal death tax.

Of course, no one believes that this situation will remain the same for long, but where it goes is still up for debate. The cold hard facts are that federal laws will be different on Jan. 1, 2011, or sooner, and many states are likely to have changes, too.

But that does not mean you can’t do anything between now and the end of the year, because another reality is that you either have an estate plan or you do not. If you have one, it is likely written to accommodate the laws that existed prior to Jan. 1, 2010.

Changing it may be helpful if you pass away before the laws change, even though it is likely to need revisions later based on anticipated changes.

If you do not have wills or trusts set up, don't worry. The state you live in has one already set up for you. I'm being a bit facetious here, but not having a will means that your estate will be split up based on your state's laws of intestacy.

Intestacy laws are rules that govern distributions of estates for those without wills. In many states, surviving spouses do not automatically get their deceased spouses' assets in full. Many will split these assets with the children of the deceased.

Maybe that is OK if you don't need all of your spouse's assets to maintain your lifestyle. But if you need these assets, and don't get them because the state directed up to half to your adult children, you may be a little upset.

This may feel even worse if those children are from a previous marriage or a child out of wedlock.

So the need for a current, functioning will exists today regardless of what the death tax laws are. I stress the words current and functional because an old one with wrong people or provisions could be as bad as having no will at all.

Besides directing who gets what and when, a good will should also have adequate provisions in it to designate care takers of minor children or elderly parents.

Even though you may not consider yourself rich, trusts may also be an important part of your mix.

The trust can prevent your 19-year-old child from taking an inheritance and squandering it all in a year or two. How the trust accomplishes this is by your choice of a trustee. That trustee is the “boss” of what happens with that trust account, and must follow the rules of the trust that you design with your attorney.

Get over the cost of doing this right and get it done.

John P. Napolitano is the CEO of U.S. Wealth Management in Braintree, Mass. He may be reached at jnap@uswealthcompanies.com or www.makingcentsblog.com.